7. The money creation processSuppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 5%. TheFederal Reserve buys a government bond worth $200,000 from Sean, a client of First Main Street Bank. He deposits the money into his checkingaccount at First Main Street Bank.Complete the following table to reflect any changes in First Main Street Bank's T-account (before the bank makes any new loans).AssetsLiabilities Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ràtio is 5%.Hint: If the change is negative, be sure to enter the value as negative number.Amount Deposited Change in Excess Reserves(Dollars)(Dollars)200,000Now, suppose First Main Street Bank loans out all of its new excess reserves to Rina, who immediately uses the funds to write a check to Musashi.Musashi deposits the funds immediately into his checking account at Second Republic Bank. Then Second Republic Bank lends out all of its new excessreserves to Bob, who writes a check to Yvette, who deposits the money into her account at Third Fidelity Bank. Third Fidelity lends out all of its newexcess reserves to Cho in turn.Change in Required Reserves(Dollars)Fill in the following table to show the effect of this ongoing chain of events at each bank. Enter each answer to the nearest dollar.First Main Street BankSecond Republic BankThird Fidelity BankIncrease in Deposits(Dollars)Increase in Required Reserves(Dollars)Increase in Loans(Dollars)Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves. Under thesein demand deposits.assumptions, the $200,000 injection into the money supply results in an overall increase of

A bank is a financial institution that accepts deposits from customers and uses those funds to make…

Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all haw Federal Reserve buys a government bond worth $200,000 from Sean, a client of First account at First Main Street Bank. Complete the following table to reflect any changes in First Main Street Bank's T-accou Assets Liabil

Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all haw Federal Reserve buys a government bond worth $200,000 from Sean, a client of First account at First Main Street Bank. Complete the following table to reflect any changes in First Main Street Bank's T-accou Assets Liabil

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter14: Banking And The Money Supply

Section: Chapter Questions

Problem 2.3P

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7. The money creation process Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 10%. Hubert, a client of First Main Street Bank, deposits $500,000 into his checking account at First Main Street Bank. Complete the following table to reflect any changes in First Main Street Bank's T-account (before the bank makes any new loans). Assets Liabilities Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 10%. Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in Excess Reserves Change in Required Reserves (Dollars) (Dollars) (Dollars) 500,000 Now, suppose First Main Street Bank loans out all of its new excess reserves to Eileen, who immediately uses the funds to write a check to Clancy. Clancy…
7. The money creation process Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 20%. Kenji, a client of First Main Street Bank, deposits $750,000 into his checking account at First Main Street Bank. Complete the following table to reflect any changes in First Main Street Bank's T-account (before the bank makes any new loans). Assets Liabilities Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 20%. Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in Required Reserves (Dollars) Change in Excess Reserves (Dollars) (Dollars) 750,000 Now, suppose First Main Street Bank loans out all of its new excess reserves to Ginny, who immediately uses the funds to write a check to Eric. Eric deposits the funds immediately into his checking account at Second Republic Bank. Then…
1.Name a reason why retail Money Market Mutual Funds are not included in M1 but demand deposits and other checkable deposits are. What specific role of money does this analysis (e.g. medium of exchange, standard of value, standard of deferred payments, store of value) pertain to? 2.Passbook savings accounts and NOW accounts (part of checkable deposits) are both interest bearing bank deposits, but NOW accounts have checkable privileges and passbook savings accounts have no checkable privileges. Then why would anyone have a passbook savings deposit? Provide the economic concept behind this argument 3.Choose an interest rate other than the 3 month Treasury Bill rate or the Federal Funds rate. Provide a definition for this interest rate. Now consider the website of the Federal Reserve Economic Database (FRED), given by http://research.stlouisfred.org/fred2/. Using this database, look up the series for monthly observations for this interest rate, and provide a graph of this…
7. The money creation process Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The reguired reserve ratio is 5%. Lorenzo, a client of First Main Street Bank, deposits $200,000 into his checking account at First Main Street Bank. A- Complete the following table to reflect any changes in First Main Street Bank's T-account (before the bank makes any new loans). Assets Liabilities Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 5%. bonge Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in Excess Reserves Change in Required Reserves (Dollars) (Dollars) (Dollars) 200,000 11:26 AM 4/3/2022 F8 F9 Insert Prt Sc F10 F11 F12 Fn Lock F1 /F3 F4 F5 F6 F7 Del F2 Esc #3 24 & %23 Backsp 1 6. 8. 9. %3D 2 4. 1 W F R
1. You deposit $100 of currency into your account. Explain what happens to reserves , checkabledeposits, and monetary base? 2. Explain what the shadow banking system is and how it works. 3. Your bank has the following balance sheet:Assets LiabilitiesReserves $70 million Checkable deposits $200 millionSecurities $50 millionLoans $130 million Bank capital $50 millionIf the required reserve ratio is 10%, what actions should the bank manager take if there is anunexpected deposit outflow of $50 million? Explain your answer. 4. Explain and demonstrate graphically that if the central bank pursues targeting a monetaryaggregate, it is likely to lose control over the interest rate. 5. In the market for reserves, the federal funds rate is equal to the interest rate paid on excessreserves. Explain and demonstrate graphically the effect of an open market sale on the federalfunds rate.
5. The money creation process Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at 5%. Musashi, a Southeast Mutual Bank customer, deposits $200,000 into his checking account at the local branch. Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans). Assets Liabilities Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 5%. Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in Excess Reserves (Dollars) (Dollars) 200,000 Change in Required Reserves (Dollars) Now, suppose Southeast Mutual Bank loans out all of its new excess reserves to Kyoko, who immediately uses the funds to write a check to Jacques. Jacques deposits the funds immediately into his checking account at Walls Fergo Bank. Then…
9 If the interest rate................... opportunity cost of holding money decreases, and the quantity demanded of money increases; decreases decreases; increases £0000 increases; also increases does not change; does not change 10 If the total deposits-on-demand in Bank A total $500 mil and the required reserve ratio is 2.5 percent, then required reserves at Bank A equal more than 1,300,000,000 equal to 13,000,000 less than 13,000,000 more than 13,000,000
Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at 25%. Paolo, a Southeast Mutual Bank customer, deposits $1,800,000 into his checking account at the local branch. Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans). Deposits Assets (Dollars) 1,800,000 $1,800,000 ▼ Reserves Liabilities Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 25%. Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in Excess Reserves Change in Required Reserves (Dollars) (Dollars) Southeast Mutual Bank Walls Fergo Bank PJMorton Bank $450,000 Now, suppose Southeast Mutual Bank loans out all of its new excess reserves to Lucia, who immediately uses the funds to write a check to Kenji. Kenji deposits the funds…
6. If a bank has reserves of $75 and excess reserves are equal to $0 when the reserve ratio is 10%, the bank has deposits of $
2. Here is the balance sheet of the consolidated banking system of the country of Zargadee (all entries are in millions): Consolidated Balance Sheet of the Entire Economy of Zargadee Assets Reserves Cash in Vault Deposits at CBZ Bonds Loans 50 90 Total Reserves Total Assets 140 460 1000 1600 Liabilities Deposits Borrowing from CBZ Total Liabilities 1400 200 1600 Assume that 1) households hold no currency and 2) banks hold no excess reserves. The current reserve requirement is 10%. The Central Bank of Zargadee (CBZ) uses the three traditional tools to perform monetary policy in an economy that is reserve constrained. a. Under our assumptions, what is the money multiplier? For each part (b)-(d) below, i) Conceptually explain the effect of the policy on the money supply. ii) Calculate the change in M1 given our assumptions. iii) Construct the new balance sheet of the consolidated banking system of Zargadee under the new policy. iv) When the money supply changes, list a chain of events to…
Your bank has the following balance sheet: Assets Liabilities Checkable Reserves $90 million $380 million deposits $130 Securities million Loans $200 million Bank capital $40 million If the required reserve ratio is 20%, what will be the size of this bank (as measured by its total assets or liabilities) after $20 million deposit outflow if it just meets reserve deficiency by taking out a discount loan from the Federal Reserve? $402 million $400 million. OOOO $420 million. $412 million.
Table 2 First National Bank Assets Liabilities and Owners' Equity Reserves $1,200 Deposits $9,000 Loans $8,000 Debt $800 Short-term securities $800 Capital (owners' equity) $200 Refer to Table 2. The required reserve ratio is 6 percent and First National Bank sells $150 of its short-term securi to the Federal Reserve. This action will increase First National's reserves by S150. Its excess reserves are $240. decrease First National's reserves by $150. Its excess reserves are $0. increase First National's reserves by $150. Its excess reserves increase by $150. increase First National's reserves by $150. Its total reserves increase by $150. both c and d above